SUPPLY AGREEMENT

This Supply Agreement is entered into as of the last date set forth on the signature page hereto (the “ Signing Date ”) between SHANGHAI ALEX NEW ENERGY CO., LTD., a China company (hereinafter “ ALEX ”) and HOKU MATERIALS, INC., a Delaware corporation (hereinafter “ HOKU ”).  HOKU and ALEX are sometimes referred to in the singular as a “ Party ” or in the plural as the “ Parties ”.

Whereas, HOKU desires to supply polysilicon to ALEX for its general use beginning in calendar year 2010 for a continuous period of ten years from the date of the First Shipment Date (as defined below).

Whereas, in exchange for HOKU’s agreement to allocate the supply of polysilicon, ALEX desires to provide HOKU with a firm order for polysilicon upon the terms and conditions provided herein.

Whereas, HOKU is a wholly owned subsidiary of Hoku Scientific, Inc. (“Hoku Scientific”), which is listed on the Nasdaq Global Market, and HOKU is the operating company that owns all of the assets for Hoku Scientific’s polysilicon business.

NOW, THEREFORE, in furtherance of the foregoing Recitals and in consideration of the mutual covenants and obligations set forth in this Agreement, the Parties hereby agree as follows:

1.           Effectiveness.  This Agreement shall become effective upon ALEX’s payment to HOKU of the Initial Deposit pursuant to Section 6.1 below (such payment date, the “ Effective Date ”).  If such payment is not made within ten (10) calendar days after the Signing Date, then this Agreement shall be voidable at the sole and absolute option of HOKU.

2.            Definitions .

2.1.           “ Affiliate ” shall mean, with respect to either Party to this Agreement, any entity that is controlled by or under common control with such Party.

2.2.           “ Agreement ” shall mean this Supply Agreement and all appendices annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof.

2.3.           “ First Shipment Date ” shall mean the first day after January 9, 2010, when HOKU commences delivers to ALEX of Products pursuant to this Agreement.

2.4.           “ Facility ” shall mean any facility used by HOKU for the production of the Product.

2.5.            “ Independent Expert ” means any Qualified Laboratory that is reasonably acceptable to each of HOKU and ALEX; provided, however that if such parties cannot agree on the Independent Expert within ten (10) days, each Party shall select one independent expert form the list of Qualified Laboratories, and those two independent experts shall select the Independent Expert.

2.6.           “ Minimum Annual Quantity of Product ” means [*] metric tons ([*] kilograms).

2.7.           “ Minimum Monthly Quantity of Product ” means not less than [*] of the Minimum Annual Quantity of Product.

2.8.            “ Product ” shall mean the raw polysilicon in chunk form manufactured by HOKU and sold to ALEX pursuant to this Agreement.

2.9.           “ Product Specifications ” shall mean the quality and other specifications set forth on Appendix 2 to this Agreement.

2.10.           “ Qualified Laboratory ” means each qualified laboratory set forth on Appendix 2 to this Agreement.

2.11.           “ Signing Date ” has the meaning set forth in the first paragraph of this Agreement.

2.12.           “ Term ” shall mean the period during which this Agreement is in effect, as more specifically set forth in Section 10 of this Agreement.

2.13.           “ Total Deposit ” shall mean all deposits or prepayments required to be paid by ALEX to HOKU hereunder including without limitation the Prior Deposit, the Initial Deposit, the Second Deposit, the Third Deposit, and the Fourth Deposit.

2.14.           “ Year ” shall mean each of the ten (10) twelve-month periods commencing on the First Shipment Date.

3.            Ordering .

4.            Supply Obligations .

4.1.           HOKU shall deliver each Year pursuant to this Agreement starting on the First Shipment Date at least the Minimum Annual Quantity of Product in approximately equal monthly shipments pursuant to Section 5.1 below; provided however, that if HOKU fails to deliver a monthly shipment, then HOKU may deliver any deficiency (i.e., the difference between the scheduled Minimum Monthly Quantity (as defined below) and the amount of Product actually delivered, the “ Deficiency ”) within [*] days without breaching this section.  At any time during the term of this Agreement, HOKU may ship to ALEX up to the full cumulative balance of Minimum Annual Quantity of Product to be shipped through the end of this Contract (an “ Excess Shipment ”) with ALEX’s prior written consent. This shipment will be credited against each subsequent Minimum Annual Quantity of Product.  For example, if the Minimum Annual Quantity of Product for a given Year is [*] metric tons, and if HOKU delivers [*] metric tons in January, then the next shipment of [*] metric tons is not required until the following Year. HOKU shall deliver any deficiency in the Minimum Annual Quantity of Product within the first quarter in the next Year. Any deficient shipments of the Minimum Annual Quantity of Product which are delayed beyond the first quarter of the next Year shall be deemed to constitute a material breach of this Agreement pursuant to Section 10.2.1. For the avoidance of doubt, each monthly shipment shall be applied first to satisfy the Minimum Monthly Quantity for that calendar month. Any Product in excess of this amount shall then be applied to reduce the oldest outstanding Deficiency.

4.2.           HOKU intends to manufacture the Products at its Facility; however, notwithstanding anything to the contrary herein, HOKU may deliver to ALEX Products that are manufactured by a third party other than HOKU, (the “ Alternative Products ”), provided that the Products meet the Product Specifications and price set forth in this Agreement. The Alternative Products shall conform to the warranties and representations of HOKU to ALEX hereunder, and the quality, price, delivery and any other terms and conditions of the Alternative Products shall be no less favorable than the terms and conditions set forth in this Agreement.  Delivery of the Alternative Products shall not release or mitigate HOKU’s liabilities and obligations hereunder except that delivery of the Alternative Products is deemed to be delivery of Products, and ALEX shall have the same rights and HOKU shall have the same obligations as set forth hereunder with respect to any Alternative Products.  HOKU shall notify ALEX in writing prior to the delivery of Alternative Products.

4.3.           Except in the case of a force majeure pursuant to Section 13 below, if at any time after [*], HOKU does not supply any Products pursuant to Section 4.1 or 4.2 within [*] days of the scheduled delivery date, HOKU will provide ALEX with a purchase price adjustment. Such purchase price adjustment shall be [*] percent [*] of the value of the respective delayed Products (the “ Price Adjustment ”) for each week or part thereof that the Product shipment (or part thereof) is delayed beyond the [*] day grace period.  In addition, the Price Adjustment shall apply to all late shipments of Products between [*], without any grace period.  Any purchase price adjustment as a result of this Section 4.3 will be paid by HOKU at the end of the term of the applicable calendar quarter.  In lieu of making a cash payment to ALEX pursuant to this Section 4.3, HOKU may, at its option, pay for such purchase price adjustment in the form of a credit issued for future shipments of Products. Notwithstanding anything to the contrary, the maximum amount of such purchase price reduction is limited to [*] percent ([*]) of the value of the respective delayed Products.  Monthly shipments which are delayed beyond [*] days shall be deemed to constitute a material breach of this Agreement pursuant to Section 10.2.1 below.  Notwithstanding the foregoing, if ALEX fails to make a payment to HOKU within the [*]-day period set forth in Section 6.4 below, HOKU shall not be required to supply any Product to ALEX until HOKU has received the past due amount including any interest payable thereon pursuant to this Agreement.  For the avoidance of doubt, ALEX’s right to reduce the purchase price pursuant to this Section 4.3 shall not apply if HOKU is not fulfilling its supply obligations for this reason. Monthly shipments which are delayed more than [*] days in a calendar year AND are less than [*] of the Minimum Annual Quantity of Product shall be deemed to constitute a material breach of this Agreement pursuant to Section 10.2.1.

5.            Shipping & Delivery .

5.1.           Except as provided in Section 4.2 above, shipments shall be made from the Facility on a monthly basis in accordance with a shipment schedule that will be provided by HOKU each Year under this Agreement and reviewed and approved by ALEX (the “ Shipment Schedule ”) no later than [*] days prior to the applicable Year.  The Shipment Schedule shall provide for approximately equal monthly shipments that add up to the Minimum Annual Quantity of Products, and that are not less than the Minimum Monthly Quantity of Products.  HOKU will use commercially reasonable efforts to make monthly shipments available on or about the fifteenth (15 ^th ) day of each month and will advise ALEX approximately seven (7) days prior to the expected ship date; provided, however, that ALEX may request an alternate shipping date that is within fourteen (14) days after the advised schedule. Product shall be ready to ship EXW the HOKU Facility. (INCOTERMS 2000).

5.2.           HOKU will use commercially reasonable efforts to make available to ALEX its first shipment of Products on or before January 10, 2010; provided, however, that HOKU shall have no obligation to ship any Products to ALEX until the Total Deposit has been paid in full; and provided further that HOKU may extend the first shipment date by one month for each week that ALEX is late in paying any installment of the Total Deposit per Section 6 below. Notice of any expected delay beyond this date shall be made in writing to ALEX not later than October 1, 2009.

5.3.           HOKU hereby covenants and agrees that, provided ALEX is not in breach of any material term of this Agreement, including, without limitation, its payment obligations hereunder, HOKU shall not ship any Products to any third party that is not one of HOKU’s Other Customers (e.g., spot market sales), or to any of HOKU's Customers with polysilicon Supply Agreements signed after the Effective Date of this Agreement until HOKU has satisfied its delivery obligations to ALEX pursuant to this Agreement.

6.            Payments & Advances . The Total Deposit shall be used only by HOKU for polysilicon facilities construction, operation, administration, and other expenses and investments related to HOKU’s polysilicon business.

6.1.           HOKU acknowledges receipt of Five Million U.S. Dollars ($5,000,000) from ALEX as a prepayment for Products (the “ Prior Deposit ”)

6.2.           Within ten (10) days after the Signing Date, ALEX shall provide HOKU with a payment of Two Million U.S. Dollars (US$2,000,000) as an advance payment for Products to be delivered under this Agreement, via wire transfer of immediately available funds (the “ Initial Deposit ”).

6.3.           ALEX shall pay in cash to HOKU the additional sum of Eight Million U.S. Dollars (US$8,000,000) (the “ Second Deposit ”) as an advance payment for Products to be delivered under this Agreement.  Payment of the Second Deposit shall be made on or before March 25, 2009.

6.4.           ALEX shall pay in cash to HOKU the additional sum of Two Million U.S. Dollars (US$2,000,000) (the “ Third Deposit ”) as an advance payment for Products to be delivered under this Agreement.  Payment of the Third Deposit shall be made on or before June 24, 2009.

6.5.           ALEX shall pay in cash to HOKU the additional sum of Three Million U.S. Dollars (US$3,000,000) (the “ Fourth Deposit ” and together with the Prior Deposit, the Initial Deposit, the Second Deposit, and the Third Deposit, the “ Total Deposit ”) as an advance payment for Products to be delivered under this Agreement.  Payment of the Fourth Deposit shall be made on or before July 28, 2009.

6.6.           HOKU shall invoice ALEX at or after the time of each shipment of Products to ALEX. Taxes, customs and duties, if any, will be identified as separate items on HOKU invoices. All invoices shall be sent to ALEX’s address as provided herein. Payment terms for all invoiced amounts shall be [*] days from date of shipment as reflected in the bill of lading or airway bill. All payments shall be made in U.S. Dollars.  Unless HOKU is entitled to retain the Total Deposit as liquidated damages pursuant to Section 12 below, shipments to ALEX shall be credited against the Total Deposit on a straight-line basis during the second through tenth Year.

6.7.           The prices are EXW prices (INCOTERMS 2000). Prices for the Products do not include any excise, sales, use, import, export or other similar taxes, such taxes will not include income taxes or similar taxes, which taxes will be invoiced to and paid by ALEX, provided that ALEX is legally or contractually obliged to pay such taxes. ALEX shall be responsible for all transportation charges, duties or charges, liabilities and risks for shipping and handling (and hereby indemnifies HOKU for such costs, liabilities and risks); thus, the price for the Products shall not include any such charges.

6.8.           Late payments and outstanding balances, including, without limitation, late payments of any portion of the Total Deposit, shall accrue interest at the lesser of [*] per annum or the maximum allowed by law.

7.            Security Interest .

7.1.           Subject to receipt of the Initial Deposit HOKU hereby grants to ALEX a security interest to secure the repayment by HOKU to ALEX of the Total Deposit following any of the events set forth in Section 10.5 below, which shall be subordinated in accordance with Section 7.2 below, in all of the tangible and intangible assets related to HOKU’s polysilicon business (the “ Collateral ”).

7.2.           ALEX acknowledges and agrees that the security interests and liens in the Collateral will not be first priority security interests, will be expressly subordinated to HOKU’s third-party lenders (the “ Senior Lenders ”) that provide debt financing for the construction of any HOKU Facility, and may be subordinated as a matter of law to other security interests, and to security interests that are created and perfected prior to the security interest granted to ALEX hereby. ALEX shall enter into subordination agreements with the Senior Lenders on terms and conditions reasonably acceptable to the Senior Lenders.

7.3.           In addition, ALEX shall enter into collateral, intercreditor and other agreements (the “ Collateral Agreements ”) with HOKU’s Senior Lenders, and with Suntech Power Holding Co., Ltd., Solarfun Power Hong Kong Limited, Jiangxi Jinko Solar Co., Ltd., Tianwei New Energy (Chengdu) Wafer Co., Ltd, Wealthy Rise International, Ltd. (Solargiga) and HOKU’s other customers who provide prepayments for Products (collectively, “ HOKU’s Other Customers ”), as may be reasonably necessary to ensure that the security interest granted hereby is pari passu with the security interests that may be granted to HOKU’s Other Customers.  ALEX may not unreasonably refuse to sign any such Collateral Agreement, provided that such Collateral Agreement grants ALEX a pari passu priority with respect to HOKU’s Other Customers, and is expressly subordinated to the Senior Lenders.

7.4.           The security interest granted hereby shall continue so long as HOKU continues to maintain any amount of the Total Deposit, and only to the extent of such remaining amount of the Total Deposit being held by HOKU, which has not been credited against the shipment of Products pursuant to this Agreement, or otherwise repaid to ALEX.  Notwithstanding anything to the contrary contained in this Agreement, the Collateral consisting of real property shall secure only the obligations of HOKU to refund any portion of the Total Deposit to ALEX in accordance with the terms of this Agreement.  When the Total Deposit is no longer held by HOKU, ALEX will sign such documents as are necessary to release its security interests.

7.5.           HOKU and ALEX each agree to act in good faith to execute and deliver any additional document or documents that may be required in furtherance of the foregoing provisions of this Section 7, including the Collateral Agreements. In any event, HOKU and ALEX shall enter into the Collateral Agreements prior to HOKU granting any senior security interest to the Senior Lenders. Neither HOKU nor ALEX may unreasonably refuse to sign any such document.

8.            Product Quality Guarantee .

8.1.           HOKU warrants to ALEX that the Products shall meet the Product Specifications. For each shipment, this warranty shall survive for the lesser of (a) [*] days after ALEX receives the products; or (b) [*] days after the release of the products by HOKU at EXW origin (INCOTERMS 2000) (the “ Warranty Period ”).  Upon release of the Products to a common carrier or freight forwarder, EXW origin (INCOTERMS 2000), HOKU warrants that the Products shall be free of all liens, mortgages, encumbrances, security interests or other c